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Government changes to residential property deductions

As part of the recent federal budget, the Government has introduced measures to restrict deductions in respect of investment properties.

As a residential investment property owner, one of the measures that may impact on you directly is that travel expenses to and from your residential investment property to inspect, maintain or collect rent will no longer be tax deductible as from 1st July 2017. This particular measure has been introduced because some landlords have been combining private trips with their rental property management and not correctly apportioning their expenses to exclude the private portion of the travel expenses. This is the last financial year that travel expenses associated with your property management will be tax deductible. So, if you thinking of visiting your property to conduct an inspection, you should do so before 30th June 2017 to claim the tax deduction.

The Australian Tax Office currently allows owners of income producing property to claim depreciation deductions for the wear and tear that occurs to a building’s structure and the plant and equipment assets within. Under the new measures property investors will be able to depreciate any new plant and equipment assets and items added to their property, however subsequent owners will not be able to claim depreciation on existing plant and equipment assets. Depreciation deductions will only be available for newly acquired assets, where the property owner directly incurs the expenditure. This new measure will apply from July 1, 2017 (for plant and equipment acquired after 9 May 2017).
The entire purchase price will be allocated to the property’s cost base for capital gains tax purposes, rather than being apportioned between the property and removable assets such as carpets, dishwashers and air-conditioning units. Previously, the allocation of the purchase price between the property and the component assets would normally be performed by a qualified quantity surveyor. This new proposal will not affect investors who already hold residential properties prior to 9 May 2017.

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